Everything You need to Know about Hr Audit

What is HR Audit And It's importance?

An HR audit is an objective examination of your business’s HR policies, practices, and procedures. The goal is to look for trouble spots and/or identify ways you can improve.

An HR audit is the only way you can fully assess whether your HR processes and policies are benefiting or harming your overall business. If you’re in danger of a lawsuit or criminal suit, if your HR systems are inefficient, if your employees aren’t developing, or if you can’t attract the right employees, your business will suffer. Improve those areas, and you can improve your chances for success

Benifits Of HR Audit in Post COVID

  • It helps to find out the proper contribution of the HR department towards the organization.
  • Development of the professional image of the HR department of the organization.
  • Reduce the HR cost.
  • The motivation of the HR personnel.
  • Find out the problems and solve them smoothly.
  • Provides timely legal requirements.

Need and Purpose of Human Resource Auditing

The commonly understood audits are the established and regular accounting audits carried out per specific statutory regulations. However, in the case of human resource audits, there is no legal obligation, but enlightened management has voluntarily accepted its usefulness depending upon the circumstances. The following circumstances may be cited as examples:

· Felt concerned by top management,
· Compulsions of the external forces necessitating a situational audit,
· Business changing significantly influenced by international business decisions affecting human resource management, and
· An urge on the part of human resource management professionals towards the advancement of practices and systems.

How HR Audit benefits any organization

When you conduct an HR audit you can look into one or more of the following areas, depending on your concerns, budget, and time frame.

Compliance:- Any human resource leadership team will want to know that they are compliant. An HR compliance audit focuses on how well your business is complying with current local, state, and federal employment laws and regulations. This is a risk-mitigation audit. Your goal is to ensure you aren’t violating any laws or leaving yourself open to liability lawsuits.

Best Practices:- Is your human resource management team at the top of their game? An HR best-practices audit compares your HR processes and policies with the accepted industry standards. This type of audit can be greatly beneficial to a growing company because it can help ensure you’re on the right track as you increase payroll, create handbooks, establish job descriptions, and set expectations for your new employees.

Performance:- An HR performance audit involves a review of personnel files to evaluate the quality of feedback your managers are giving their staff. A lack of quality feedback can inhibit the growth of employees. But a performance audit can identify problems with your review and feedback process before employee development suffers.

Competitiveness:- What kind of compensation packages have your HR managers put together? Are your wages, salaries, and benefits packages competitive? An HR competitiveness audit looks into all areas of employee compensation and benefits to assess whether your business is doing what it needs to do to attract the best-qualified employees. Even if you can’t compete on wages or salaries, a competitiveness audit can identify other areas (such as telecommuting opportunities and flexible work schedules) that can improve how attractive you are to applicants.

Function Specific:- A function-specific audit is a kind of mini-audit where you examine just one area of your HR processes or policies. You might choose to investigate an area such as payroll management, employee review policies, record-keeping efficiency, etc.

Do’s & Don’t of HR Audit


  • Make the purpose clear from the beginning whether you like a full comprehensive Audit (covering HR strategies, structure, systems, and practices, HRD competencies of all stakeholders (HR staff, line managers, workmen, top management, etc.) HRD and organizational Culture, and HR’s impact on Business (talent, intellectual capital, and financial variables) or you like to have only select subsystems audit.
  • Get the qualifications and experience of the audit team and make sure you have qualified auditors. Preferably have a prior discussion before commissioning an audit
  • Start the audit with a note to be circulated explaining the purpose of audit and the outcomes expected and how you plan to use them
  • Start the audit with a talk or address by the auditors the senior and top managers explain the methodology and scope of an audit and seek their cooperation. Normally no line managers should be required to give more than 2-3 hours time with auditors but the HR staff should be required to give more time.
  • Insist on an HR improvement plan as a result of the audit and preferably an implementation plan with phases from the auditors.
  • Remember the main difference between HR audit and F&A audit is that the former relies upon stats with documentation and f goes on to rely heavily on people, their feelings, and experiences while the alter relies exclusively on documents, and feelings and opinions don’t normally matter. Hence all audits require compulsory involvement of employees and interviews with them etc. Questionnaires can tell the truth if anonymity is assured and ensured.
  • An audit can be done at any time, when things are looking up and you are doing well or when chips are down, or when you have some free time. There is no specific timing for audits. Your need and context determine the audit scope and methodology.
  • Open yourself fully, totally and express your views opinion and desired improvements fearlessly as the audit is a way for you to get many things done to maximize the impact of your function and role
  • Get HR staff roles reformulated and competencies development plan outlined on the basis of the audit. You could also get your budgets rationalized or enhanced to invest in intellectual capital building and higher impact of HR


  • Avoid employing your friends as auditors. It creates difficulties for a theme as well as for you.
  • If you don’t know, say so
  • Don’t spring any surprises on the auditor. Auditors don’t like surprises particularly if they have a potentially significant impact on the audit scope, potential findings, or the audit report.
  • Don’t provide any extraneous, unsolicited information. If you are unsure about the information and how it may relate to the audit, but the auditor has not specifically requested it, consult with Internal Audit first and a decision will be made on how to proceed.
  • Do not adopt principles that ultimately render financial statements misleading. A company’s financial statements are useless if they are misleading. It is generally assumed that adherence to officially established accounting principles results in financial statements that are not misleading.
  • Do not “prepare” the company for the audit. Show the reality. Be honest with the system and the auditor. Open yourself to opportunities for improvement.


It is necessary to take a look at these and other questions

· Does the organization regularly forecast the supply of and demand for employees in various categories?
· Do job analyses exist for all positions in the organization?
· Are all potential sources of recruitment identified and evaluated?
· Are measurable selection criteria developed and used while filling up jobs?
· Do effective training and development programs exist?
· Is there a performance evaluation system that helps assess past and potential performance?
· Is the remuneration program designed to motivate employees?
· Is the plant unionized?
· Does a grievance procedure exist?
· Does the organization have a high quality of work-life?
· Does the HRM practice contribute to organizational effectiveness?
· Does the management underestimate the capacity of HRM to contribute to organizational effectiveness?

Are All HR Audits Created the Same?

No. There are multiple types of HR audits with differing goals. The two main types are risk mitigation and value creation. While you can conduct both types of audits simultaneously, they will focus on different aspects of your HR processes and policies. Risk mitigation will mainly look for areas where you can get into legal trouble or are leaving yourself open to employment-related lawsuits. Value creation will mainly look for areas where your processes and policies can be improved to maximize the value of your employees or attract better employees.

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